Advanced Micro focusing on servers as PC market slumps

There's much uncertainty in the personal computer market, so it's not surprising that Advanced Micro Devices is focusing its energies on a market where it has traditionally been strong: servers.

The Sunnyvale, Calif.-based company on Monday announced that it will develop 64-bit server processors based on the technology of ARM Holdings and SeaMicro, the micro-server company AMD acquired earlier this year.

The initiative is clearly aimed at a steadily growing data center market driven by the spread of cloud computing which enables businesses to access computing power through a network, instead of in-house data centers. The trend has allowed enterprises to dramatically reduce IT costs.

"There's no doubt that the cloud changes everything," AMD Chief Executive Rory Read said a presentation in San Francisco. "We will user in the next era of server computing."

The fact that the Sunnyvale, Calif.-based company is getting some help from ARM Holdings underscores the changes in the chip market. The British chip design company, a major competitor of Intel Corp. , is dominant in the smartphone and tablet markets, and is looking to expand into the PC and server arenas.

Lisa Su, general manager of AMD's global business units, also noted that "the data center is fundamentally where the growth is going to be."

Analysts generally agree, even as they pointed to problems AMD faces in the broad tech market.

In an interview before the announcement, Bernstein Research analyst Stacy Rasgon said an AMD push into ARM- based micro servers will help the company address a niche market, but he said it's doubtful if that could help the chipmaker's more pressing problems, led by the uncertainty in the PC market.

"It looks like their core business is collapsing," Rasgon told MarketWatch. "I would question how much of this is going to drive revenue. Probably not much."

Meanwhile, AMD is wrestling with "cash crunch issues," he said.

Williams Financial's Cody Acree also pointed to mounting worries about the future of PCs.

"That means that AMD has to do something else," Acree told MarketWatch before the AMD press conference. "It's a very important step because it's probably the only thing they have going for them to drive growth if the PC market is structurally damaged."

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